---
title: "Chongqing Brewery Closes 8 Plants in 4 Years, Addicted to Shedding Burdens"
description: "Following the low-price sale of assets, Chongqing Brewery (Group) Co., Ltd. announced on December 22 that it would close its Changde brewery. This marks the eighth plant shut down due to poor management. The company hinted at further divestitures and closures to improve production efficiency. Industry insiders note that after closing Changde, the company must prepare for employee settlement costs and impairment charges, which may impact performance, but overall, shedding bad assets is more beneficial than harmful."
author: "许伟"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2018-12-24"
language: "en"
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# Chongqing Brewery Closes 8 Plants in 4 Years, Addicted to Shedding Burdens

> Following the low-price sale of assets, Chongqing Brewery (Group) Co., Ltd. announced on December 22 that it would close its Changde brewery. This marks the eighth plant shut down due to poor management. The company hinted at further divestitures and closures to improve production efficiency. Industry insiders note that after closing Changde, the company must prepare for employee settlement costs and impairment charges, which may impact performance, but overall, shedding bad assets is more beneficial than harmful.

Following the low-price sale of assets, Chongqing Brewery (Group) Co., Ltd. (hereinafter referred to as "Chongqing Brewery") announced on December 22 that it would close its Changde brewery. According to incomplete statistics, this is the eighth plant shut down by Chongqing Brewery due to poor management. The announcement further revealed that Chongqing Brewery may continue to divest or close redundant institutions or enterprises to improve production levels. In response, industry insiders pointed out that after closing the Changde brewery, Chongqing Brewery needs to prepare for employee settlement costs and related impairment charges, which will affect the company's performance to some extent. However, overall, divesting bad assets is more beneficial than harmful for Chongqing Brewery.

**8 Plants Closed in 4 Years**

The announcement stated that to further optimize the company's supply chain in Hunan region and improve regional production efficiency and profitability, Chongqing Brewery's subsidiary, Hunan Chongqing Beer Guoren Co., Ltd. (hereinafter referred to as "Guoren Company"), plans to carry out a supply chain optimization project for the Lixian and Changde breweries located in Changde City (the latter being Guoren Company's Changde branch). The project involves closing the Changde brewery and transferring its production to the nearby Lixian brewery.

In fact, since 2015, Chongqing Brewery has implemented a strategy to shut down subsidiaries with weak radiation capabilities, strong substitutability, and low operational efficiency. It is reported that Chongqing Brewery has previously closed seven branch and subsidiary factories in Qijiang, Liuzhou, Jiuhuashan, Yongchuan, Qianjiang, and Liupanshui. Most of these factories had issues such as aging equipment and low capacity utilization, contributing minimally to the company's actual production and sales, and hindering production and business development. Beijing Business Today attempted to interview Chongqing Brewery regarding its overall operational status, plant closure plans, and sales performance, but had not received a response by press time.

Notably, in July this year, Chongqing Brewery conducted a centralized disposal of Guoren Company's machinery and equipment. In the announcement, Chongqing Brewery admitted that due to the outdated equipment, high maintenance costs, and limited production capacity of the Changde brewery, closing it would not only reduce management costs but also save capital expenditures. It is understood that the Changde brewery has been operating for about 13 years, with a beer production capacity of approximately 100,000 kiloliters, and last year produced 21,300 kiloliters of beer.

Zhu Danpeng, an analyst at China Food Industry, stated that after the Chinese beer industry entered a highly concentrated competitive stage, Chongqing Brewery missed the opportunity for external expansion. In recent years, Chongqing Brewery has been selling off bad assets at low prices, continuously divesting inefficient factories and reducing expenses such as asset depreciation and maintenance, focusing its main efforts on the Sichuan-Chongqing region. By closing factories, it has achieved profitability while further alleviating operational pressure.

**Intensified Competition and Brand Internal Friction**

Beijing Business Today noted that the continuous factory closures reflect Chongqing Brewery's recent difficulties, including unstable revenue, subsidiary losses, and weak "water storage" capacity. According to Chongqing Brewery's Q3 2018 financial report, revenue for the first nine months of 2018 was 2.924 billion yuan, a year-on-year increase of 8.81%; net profit attributable to shareholders of the listed company was 385 million yuan, up 21.7% year-on-year. However, as of September 30, advance receipts were only 46.8358 million yuan, a decrease of 38.69% compared to the full year of last year. Chongqing Brewery attributed this mainly to reduced advance payments for beer.

Industry insiders pointed out that as the beer industry enters a bottleneck, domestic beer companies are facing a period of adjustment or transformation. As a regional beer brand, Chongqing Brewery's main market in the northwestern region is highly competitive, which inevitably impacts performance.

In fact, until the end of last year, Chongqing Brewery's revenue had shrunk for two consecutive years. Although the company achieved a net profit attributable to shareholders of nearly 330 million yuan last year, a year-on-year increase of 82.03%, revenue declined by 0.64% year-on-year.

Zhu Danpeng told Beijing Business Today that Chongqing Brewery's current performance concerns are also reflected in its dual-brand strategy. "Chongqing Brewery needs to operate, and Carlsberg also needs to operate, but there is a competitive relationship between the two, which will cause serious internal friction for the company's operations." He said that after market concentration, Chongqing Brewery's development in terms of market breadth will be greatly constrained.

**Betting on Mid-to-High-End Products Faces Pressure**

As competition in the domestic beer market intensifies, many beer companies have reversed their previous "land grabbing" approach and begun to shrink their battle lines and optimize product structures. In this context, Chongqing Brewery has begun to continuously promote its product premiumization strategy, focusing investment on mid-to-high-end product lines.

Beijing Business Today reviewed Chongqing Brewery's high-end product lines in recent years and found that at the end of 2013, Denmark's Carlsberg Group took over Chongqing Brewery, thereby obtaining the license to produce and sell international brands such as Tuborg, Carlsberg, and 1664. Subsequently, it frequently launched new high-end products and upgraded its original Chongqing and Shancheng brands.

Chongqing Brewery's latest operating data shows that the proportion of mid-to-high-end product sales is continuously increasing. A relevant person in charge of Chongqing Brewery further clarified the future mid-to-high-end business strategy, stating that the company will reduce and replace mainstream and low-end product series with weak profitability and insufficient investment returns, making the product portfolio clearer and more premium. However, at present, Chongqing Brewery's premiumization prospects remain unclear. Tmall data shows that among Chongqing Brewery's products, the best-selling is still the low-end brand Shancheng Beer, with monthly sales of 1,108 units.

In this regard, industry insiders said that as the adjustment of the beer industry's product structure deepens, the problem of overcapacity has improved, and the industry will show a trend of flat volume, rising prices, and higher profits. However, the competitive situation remains severe. Consumption upgrades will further accelerate the restructuring of the high-end market, and market competition will intensify, putting significant pressure on corporate profitability.

In Zhu Danpeng's view, the biggest challenge Chongqing Brewery faces in the future is competition in the mid-to-high-end segment. Since 2017, China's beer industry has entered a period of mid-to-high-end competition. During this period, Chongqing Brewery's layout in the mid-to-high-end segment, as well as its efficiency and speed of improvement, will determine its future development direction.

However, with many domestic and foreign beer companies increasing their high-end layouts, facing domestic competitors like China Resources Snow and Tsingtao Brewery, and strong external impacts from AB InBev and Heineken, Chongqing Brewery still faces heavy pressure to break through in competition.

Source: Wine Industry Finance (hongjiuzhoukan)
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